Do You Have Capital? Here’s Why Business Owners Often Seek Home Equity Loans

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Do You Have Capital? Here’s Why Business Owners Often Seek Home Equity Loans

Businesses need capital to operate. Whether it be used to keep a company afloat during difficult times, or to protect your business with low cash flow until times grow better.

The application process for a small business to get approved for a loan can be a slow and tiresome process, especially if you don’t specifically meet strict criteria set out by banks. Fortunately, the exact funding that you need can be provided for from the equity that your home.

Borrowing From The Bank Is Not A Simple Endeavour

Even if you’re a business owner with years of experience, the banks don’t exactly make it easy to borrow money — especially if you’re a new business owner. Typically, a bank’s primary concern is to assess the risks of your business. This is done with a risk assessment to determine:

  • Your eligibility for a new loan or business expansion loan
  • The applicable terms and conditions
  • A suitable interest rate

Something to consider is that a majority of the bank’s qualification decisions for you pertain to your ability to satisfy their outlined borrowing criteria. These criteria are referred to as “the 5 C’s” of lending or crediting and include:

  1. An assessment of assets you may be using to secure your loan
  2. For business loans, consideration of your relevant experience
  3. Your business’ growth, profitability, liquidity, and cash flow projections or figures
  4. Criteria designed to ensure the risk of the bank’s loan remains at an acceptable level
  5. Your credit history’s ability to justify your ability to repay your loan

A bit overwhelming, right? It can be a real struggle to satisfy your bankers criteria to approve your business loan. That’s why at Leap Financial, we’ve made it easy for businesses to attain the funds that they need by simply using the home equity that they’ve already built! In some cases, clients have even been fortunate enough to deduct the interest on their home equity loan as a business expense!

How To Successfully Write Off Your Home Equity Business Loan Interest

To the dismay of new borrowers, it’s quite typical for both new and experienced entrepreneurs to borrow cash for business operations such as:

  • Keeping their business alive through seasonal downturns
  • Reconciling short-term gaps expenses and revenue
  • Covering overhead costs when operations are suspended during a health or economic crisis

So knowing that, in many cases, you may be able to “write off” the cost of a loan used to cover business expenses, can be quite comforting and reassuring.

For instance, while the interest you pay on a mortgage loan is not typically tax deductible, if the funds are used to cover business expenses, the entirety or part of the interest from your home equity loan or second mortgage may be tax deductible!

As a matter of fact, any interest charges that your business may pay to generate income is typically deductible against that income on your business tax return. Our only advice is to make sure you discuss your plans with an accountant for their advice, and to maintain records of how your business used the borrowed money.

So, in summary:

  • Qualification for business loans from a bank can often be challenging
  • Homeowners can benefit from a home equity loan by using it as business capital
  • “Writing-off” business loan costs from business income is beneficial for tax purposes

At Leap Financial, we are here to serve your financing needs. Apply today to learn how much you can qualify for.